Congratulations! You bought a home — your dream home — a Victorian, complete with crown molding, porticos, bay windows, turrets, a mansard roof, and all the flourishes of that era. It’s the kind of home that would’ve graced the silver screen in a Hitchcock flick or inspired an architect’s envy. Naturally, you want a great homeowners insurance policy to protect it.
But maybe you’re new to insurance and aren’t sure how much coverage you really need. So, you figure it’s safest to get as much coverage as your home’s market value (what you just paid for your home, which factors in the cost of the land as well as the home itself).
Unfortunately, you’d be making a costly homeowners insurance mistake. Here’s why.
How homeowners insurance works
Home insurance is designed to safeguard your home from theft, fire, wind, hail, and just about everything in between. A suite of different coverages work together to give you well-rounded protection.
Of all the coverages that come standard, the most important coverage is dwelling protection, which is designed to repair or rebuild your home to its pre-disaster condition if the worst occurs.
Since rebuilding a home depends on the various materials, labor costs, and features of your home, insuring your home at market value could leave you improperly insured.
Why insuring your home at market value is a mistake
Let’s say your Victorian is in San Francisco, where property value is astronomical. You insure your home at its market value — a cool $1.5 million.
But, even with all the trimmings and period detail, the estimated cost to rebuild (known in insurance lingo as replacement cost) is only $750,000. In other words, you’re paying for more insurance than you need. Regardless of how much coverage you may have, your policy will only pay to restore your home to the way it was before.
On the other hand, if that same Victorian is in Wisconsin (where property is less expensive) and you insure it at its market value — let’s say it’s $500,000 — you could be underinsured. Since the cost to rebuild is $750,000 and you only have $500,000 in coverage, you’d be responsible for the rest. (Ouch!)
How much coverage you really need
To figure out the amount of insurance you need, consult a few reputable home appraisers or builders. Have them do a thorough walk-through to determine the cost to rebuild your home from the ground up. Their estimate should factor in your home’s unique characteristics, labor costs, and the cost of materials in your area.
You can then use their estimate to determine your dwelling protection limit. In general, it’s wise to get coverage that equals the estimated rebuilding cost of your home, but it’s up to you to decide.
Esurance homeowners insurance
At Esurance, our goal is to make insurance easier from quote to claim. If you live in a state where we offer home insurance (like Wisconsin) and you get a quote, you’ll automatically see a reconstruction cost estimate.
The estimate (acquired from Marshall & Swift/Boeckh, a leading property specialist) factors in your home’s characteristics as well as the current cost of labor and materials in your area. You can then use the estimate as a starting point or pick a level of coverage that suits you.
Automatic dwelling protection updates at renewal
Reconstruction costs, like most things in life, change. To make sure you have the best level of coverage, we’ll automatically check once a year to see if the rebuilding cost has changed in your area.
If the cost has increased, we’ll update your policy. (Of course, we’ll always let you know how the change affects your premium.) If the cost has decreased, we’ll notify you so you can update your coverage if you’d like. It’s just our way of looking out for you.